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So if you own a minority stake in anything, you can be told at any time that it has been reduced to a value of zero? I guess this makes sense if they alternati

So if you own a minority stake in anything, you can be told at any time that it has been reduced to a value of zero? I guess this makes sense if they alternative was bankruptcy. If you can't inject money to help at a critical time, then I suppose it makes sense that the business you have a share of is basically worthless, and only the one that has more money is worth something. Is this just routinely abused to disinherit a shareholder? Does this mean that being a shareholder is just about finding alliances you can use to screw others over, until you eventually get screwed yourself?

nostrademons 3y ago
Business is just about finding alliances you can use to screw others over, and picking yourself up and doing it again when you eventually get screwed yourself. In practice, this tactic does happen but I wouldn't say it's common enough to call it "routine". If the company is succeeding, it's usually better not to screw other shareholders over because the resulting interpersonal conflicts would risk the company's success, and then everybody is worth off. Similarly, if the company is failing but there's any chance of working with the people involved again, it's better not to screw them over because they won't work with you anymore, and word will likely get around that may hamper your ability to work with other people. It's only when the company itself is failing, or there's ambiguity about whether it's succeeding or failing, that there's an incentive to loot the carcass and screw over everyone else so that you get most of the residual value. But in that case, the company was failing anyway, so you wouldn't have ended up with much regardless. Interestingly the same pattern applies in a lot of situations, because it falls out of the game theoretical incentives and so any situation with the same incentives tends to give the same result. When things are going good, everybody cooperates, and is happy to take a relatively small part of an expanding pie. When things start going badly, everybody fights over who gets the last slice. Makes me worried for the state of humanity over the next 10-15 years.
rrr_oh_man 3y ago
Yes. I’ve seen all of those things happen.
_heimdall 3y ago
My uncle went through a very similar situation as the OP. He was CTO at a medical startup that raised a ton of money early on based on promising research and early results. Federal approval in the medical industry takes a mountain of cash and a long runway, by the time they got close to approval the money had dried up and the CEO was deep in the weeds of political infighting among the company leadership. I forget the exact details as both the CEO and the board were pulling quite a few nasty moves along the way, but eventually an internal round was used similarly to set a much lower valuation before raising more outside capital. My uncle hadn't left on the best terms, the company was attempting to shove him out and block him from taking part in the internal round to protect his early shares. Not too surprisingly this ended up in court (or arbitration?), but the moral is the same. When you take early shares there are ways the value can be stripped from you even if the shares aren't. There are good arguments for an internal round to reset a lower valuation, but it can easily be used as an offensive tactic to go after current share holders. I don't think people often realize what all is really on the table when signing up for a startup. I've worked for a few early startups and will take options or shares, but I view them entirely as a gamble and assume outside investors will chip away at their value before anything is ever cashed in. If I were ever to join as an executive level or founding board member I'd be worried more about sizing up the other members than the business itself. Unfortunately its sometimes more about politics and dirty tactics at that level than it is about what the company is actually producing.

nostrademons 3y ago

Business is just about finding alliances you can use to screw others over, and picking yourself up and doing it again when you eventually get screwed yourself. In practice, this tactic does happen but I wouldn't say it's common enough to call it "routine". If the company is succeeding, it's usually better not to screw other shareholders over because the resulting interpersonal conflicts would risk the company's success, and then everybody is worth off. Similarly, if the company is failing but there's any chance of working with the people involved again, it's better not to screw them over because they won't work with you anymore, and word will likely get around that may hamper your ability to work with other people. It's only when the company itself is failing, or there's ambiguity about whether it's succeeding or failing, that there's an incentive to loot the carcass and screw over everyone else so that you get most of the residual value. But in that case, the company was failing anyway, so you wouldn't have ended up with much regardless. Interestingly the same pattern applies in a lot of situations, because it falls out of the game theoretical incentives and so any situation with the same incentives tends to give the same result. When things are going good, everybody cooperates, and is happy to take a relatively small part of an expanding pie. When things start going badly, everybody fights over who gets the last slice. Makes me worried for the state of humanity over the next 10-15 years.

rrr_oh_man 3y ago

Yes. I’ve seen all of those things happen.

_heimdall 3y ago

My uncle went through a very similar situation as the OP. He was CTO at a medical startup that raised a ton of money early on based on promising research and early results. Federal approval in the medical industry takes a mountain of cash and a long runway, by the time they got close to approval the money had dried up and the CEO was deep in the weeds of political infighting among the company leadership. I forget the exact details as both the CEO and the board were pulling quite a few nasty moves along the way, but eventually an internal round was used similarly to set a much lower valuation before raising more outside capital. My uncle hadn't left on the best terms, the company was attempting to shove him out and block him from taking part in the internal round to protect his early shares. Not too surprisingly this ended up in court (or arbitration?), but the moral is the same. When you take early shares there are ways the value can be stripped from you even if the shares aren't. There are good arguments for an internal round to reset a lower valuation, but it can easily be used as an offensive tactic to go after current share holders. I don't think people often realize what all is really on the table when signing up for a startup. I've worked for a few early startups and will take options or shares, but I view them entirely as a gamble and assume outside investors will chip away at their value before anything is ever cashed in. If I were ever to join as an executive level or founding board member I'd be worried more about sizing up the other members than the business itself. Unfortunately its sometimes more about politics and dirty tactics at that level than it is about what the company is actually producing.